2025 North American Engineering and Construction Outlook
T he “2025 North American Engineering and Construction Outlook,” published in July 2025 by FMI, forecasts a significant slowdown in U.S. engineering and construction spending, with only a 1% increase projected for 2025, a sharp decline from 7% growth in 2024. This deceleration is primarily attributed to persistent weakness in the residential sector, marked by affordability issues, rising costs and tight credit. Multifamily development, in particular, is expected to continue its decline due to rising vacancy rates and slowing rent growth. Single-family residential and residential improvements are projected to stabilize in 2025, with a modest rebound anticipated in 2026, though affordability constraints will likely keep the overall residential sector under pressure.
Nonresidential building and infrastructure segments are expected to show mixed but resilient performance through 2025 and 2026. Short-term growth is anticipated in segments like office, amusement and recreation, religious, transportation, power, sewage and waste disposal and water supply. Longer-term growth (2024-2029 CAGR exceeding 5.5%) is projected for lodging, office and water infrastructure. Nonbuilding structure investment is forecast to outperform nonresidential buildings over the next five years, driven by public and private infrastructure needs.
The Nonresidential Construction Index (NRCI) improved to 49.8 from 43.5, indicating a rebound in contractor sentiment and greater confidence in economic and business conditions, although it remains just below the neutral threshold of 50, suggesting stabilization rather than expansion.
Key trends impacting the industry include:
Residential Sector: Single-family sales are improving in more affordable and disaster-affected regions. Mortgage rates are expected to remain between 6% and 7% through 2026, and tariffs are keeping construction costs elevated. Builder sentiment is cautious, with many relying on incentives. Multifamily activity will remain subdued into 2026 due to elevated costs, rising vacancy rates and limited capital availability.
Nonresidential Buildings
Office: Over 23 million square feet of office space are projected for demolition or conversion in 2025, with over 70% converting to multifamily use. The national office vacancy rate reached 19.4% in May, with limited near-term improvement. Data center investment, a subset of office, is slowing after rapid growth, facing power and labor constraints.
Commercial (including Warehouses): An estimated 15,000 store closures are projected for 2025, more than double last year’s closures, reflecting pressure on traditional retailers. Warehouse vacancy rates are expected to rise through 2025, peaking slightly below 8% in 2026.
Health Care: Growth is led by hospital and specialty care facility investment, while medical office development faces headwinds. A shift from inpatient to outpatient care is driving investment in decentralized facilities.
Educational: Public investment is a key driver, supported by higher education spending. Private educational construction declined modestly.
Religious: Growth is driven by pent-up facility needs and a return to in-person engagement, with focus on high-growth regions and multipurpose campuses.
Public Safety: Attention is shifting to modernization of existing security infrastructure, with a decline in illegal border crossings. Increased privatization of corrections infrastructure is expected.
Amusement and Recreation: Investment remains strong due to major global events and demand for technology-enabled venues. Public spending accounts for over half of total investment.
Nonbuilding Structures
Transportation: Public spending, particularly on air terminals and port infrastructure, is leading growth. Efforts to improve automation and resiliency are accelerating due to supply chain demands.
Communication: Demand is driven by continued investment in data centers, manufacturing, transportation and logistics. Changes to the BEAD program expand eligibility for satellite internet providers.
Manufacturing: Spending is expected to plateau in 2025 and decline slightly over the next few years, mainly due to a slowdown in semiconductor investments. New tax incentives and permitting reforms are expected to support long-term growth in advanced sectors.
Power: Utilities are increasing capital investment to meet rising electricity demand from data centers, new manufacturing facilities and electric vehicles.
Highway and Street: Programmed highway funding under the IIJA is set to expire in September 2026, with unspent funds expected to be redirected to roads and bridges. Roads and bridges represent the largest category of infrastructure needed in the United States through 2033.
Sewage and Waste Disposal and Water Supply: Significant investment is driven by migration trends, aging infrastructure and increased frequency of severe weather events. New spending bills include substantial cuts to the Clean Water State Revolving Fund (CWSRF) and Drinking Water State Revolving Fund (DWSRF), which will limit states’ ability to finance upgrades.
Overall, the construction industry is entering a slower and more selective phase of expansion, with elevated costs, political and geopolitical uncertainty and tight credit conditions expected to weigh on growth through at least mid-2026. This report was generated in June 2025.
U.S. Department of Labor Updates Penalty Guidelines and Eliminate Workplace Hazards
The U.S. Department of Labor (DOL) has revised its penalty guidelines for the Occupational Safety and Health Administration (OSHA) to better support small businesses and encourage quicker resolution of workplace hazards. These changes aim to make it easier for small employers to comply with safety regulations and focus their resources on creating a safer work environment.
Key Changes to OSHA Penalty Guidelines
The updated policy, effective immediately, introduces several key adjustments to how penalties are assessed:
Increased Penalty Reductions for Small Businesses: The eligibility for a 70% penalty reduction, previously limited to businesses with 10 or fewer employees, now extends to companies with up to 25 employees. This change is designed to reduce the financial burden on small employers, allowing them to invest more in safety compliance and hazard abatement.
Credit for Prompt Hazard Correction: Employers who immediately take action to fix or address a hazard are now eligible for an additional 15% reduction in their penalty.
Expanded Reduction for Employers with Good Compliance Records: The policy expands penalty reductions for employers with no history of serious, willful, repeat, or failure-to-abate OSHA violations.
Employers who have never been inspected by federal OSHA or an OSHA State Plan are eligible for a 20% penalty reduction.
Employers inspected within the last five years who had no serious, willful, or failure-to-abate violations are also eligible for this 20% reduction.
Deputy Secretary of Labor Keith Sonderling emphasized that these adjustments ensure small businesses are not penalized as severely as larger companies with more resources, supporting entrepreneurs while still holding them accountable for worker safety.
These new guidelines apply to open investigations where penalties haven’t been issued yet. However, penalties issued before July 14, 2025, will remain under the old structure. OSHA reserves the right to withhold penalty reductions if they don’t align with the goals of the Occupational Safety and Health Act.
Women in the Skilled Trades: Get the White Paper
The white paper titled “Women in the Skilled Trades: More Than Just Boots on the Ground” by the National Center for Construction Education & Research (NCCER) and Ambition Theory delves into the experiences of women in the construction industry.
Despite comprising nearly half of the overall labor force, women represented only 11% of the construction workforce in 2022, with fewer than 4% in skilled craft roles.
Key Findings
Late Entry into the Trades: Many women transition into construction careers later in life, often after dissatisfaction with other professions, and are seldom exposed to the trades early on.
Persistent Bias: Approximately 80% of the craftswomen surveyed reported having their expertise questioned or being mistaken for junior employees. Informal networks, such as the “good-ole-boy” culture, continue to influence hiring and promotions.
Lack of Support Systems: Formal mentorship and sponsorship programs are scarce, with only 1 in 15 respondents having access to career advancement resources tailored for women.
Retention Challenges: While most craftswomen enjoy their work, 40% are considering leaving their current employer within the next year, primarily due to limited advancement opportunities.
Desire for Growth: A significant 90% of respondents expressed a desire to advance into leadership, management, or training roles.
Recommendations
Early Outreach and Awareness: Implement campaigns to showcase construction and the trades as viable careers for young women.
Clear Advancement Pathways: Develop visible and achievable career progression routes that are not based on informal networks.
Formal Mentorship Programs: Establish mentorship initiatives tailored to support female craft professionals.
Inclusive Facilities and PPE: Ensure that personal protective equipment and workplace facilities are designed with women in mind, providing functionality and inclusivity.
The full white paper is available for download.
Market Confidence Dips Sharply Amid Trade Tensions
The Construction Industry Round Table (CIRT) and FMI released the Q2 2025 CIRT Sentiment Index, revealing a sharp downturn in industry confidence. The overall Sentiment Index dropped to 54.0 (from 67.9), while the Design Index fell more steeply to 44.9 (from 61.8)—marking the second-largest quarterly decline on record.
Key Takeaways
- Material cost concerns reached an all-time high.
- Sentiment dropped across all sectors, with the most significant design declines in international and transportation.
- Tariffs and trade tensions—especially amid heightened U.S.–China friction during the survey period (April 23–May 12)—played a major role in shaping outlooks.
- 46% expect operational disruptions from tariffs; nearly 50% report project delays or cancellations as a concern.
Most respondents see tariff impacts as short-term (5–9 months), but strategies to mitigate risk include: - Strengthening contracts
- Increasing domestic sourcing
- Pre-purchasing materials
- Hiring plans are in flux: 50% of firms have reconsidered 2025 hiring strategies, with 41% anticipating a labor demand decline and 36% expecting growth.
The report underscores growing caution in the design and construction sectors as firms navigate a volatile economic and geopolitical landscape.
FMI Releases 2025 Building Products Outlook Report
FMI has published its 2025 Building Products Outlook Report, spotlighting the flooring market along with trends in materials, market dynamics and M&A activity. The report also explores key trends and spending forecasts across several product categories, including windows/doors, insulation, plumbing, drywall, HVAC and roofing.
Key Takeaways
- Total spending on building products is projected to grow 23% from $450B in 2024 to $556B by 2029, with $315B in residential and $240B in nonresidential sectors.
- Nonresidential product spending is forecasted to grow 24%, led by strong gains in roofing, followed by plumbing, drywall, flooring and insulation.
- New construction will dominate spending in windows/doors (63%) and plumbing (61%), while renovation will drive investment in roofing (74%), HVAC (70%) and flooring (68%).
How Modern Building Codes Are Saving Lives and Billions in Wildfire and Fire Losses
Since 2005, wildfires have destroyed more than 100,000 structures in the United States, leading to thousands of deaths and massive economic losses. In 2022 alone, 4,446 fire-related fatalities were reported, according to the National Center for Health Statistics. The National Institute of Standards and Technology estimates wildfire-related damages cost the United States between $71.1 billion and $347.8 billion each year.
But there’s good news: building codes are making a major difference.
A joint pilot study from FEMA and the U.S. Fire Administration (USFA), called the Building Codes Save (BCS) – Fire Hazards Pilot Study, found that modern building codes significantly reduce fire-related deaths, injuries and property losses. The study focused on California statewide and Colorado’s Boulder and El Paso counties, evaluating key code improvements like:
- Fire-rated construction materials
- Smoke alarm systems
- Fire sprinkler systems
Key Findings
- $1.8 billion in structure fire savings in California and $44.9 million in the two Colorado counties
- $24.4 billion in wildfire savings in California and $457.7 million in Boulder and El Paso counties
- 100+ lives and 1,000+ injuries prevented in California alone
These results were based on comparisons between homes built before and after modern codes were adopted (post-2000 for structure fires and post-2008/2014 for wildfires, depending on the state).
The long-term outlook is promising. FEMA and USFA expect that broader adoption of modern codes—like California’s newly adopted 2025 Wildland-Urban Interface Code—will save billions more nationwide and help build safer, more resilient communities.
